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August 4, 2021

Spanish National High Court issues favorable decisions with respect to international holding structures after ECJ Danish cases

Executive summary

The Spanish National High Court recently issued three decisions regarding the application of the dividend withholding tax (DWHT) exemption under the European Union (EU) Parent Subsidiary Directive (EU PSD) and the beneficial ownership requirement related to an EU holding structure.

These decisions, which are favorable to the taxpayer, differ from the more general position taken by the Spanish tax authorities and tax courts post-Danish cases (summarized below).1

Detailed discussion


The Spanish tax authorities and tax courts have traditionally taken a narrow position when interpreting the business purpose that is required to qualify for the Spanish DWHT exemption and this is generally also the case upon tax audit.2

This approach followed by the Spanish tax authorities and the Spanish administrative courts has consisted in challenging structures on the basis of the beneficial ownership clause as a separate requirement or an independent anti-abuse rule, even if not included in the wording of the Spanish tax law. The Spanish tax authorities and administrative courts subsequently used the Danish cases to strengthen their approach despite the existence of other general anti-avoidance rules in the Spanish tax legislation – which require a specific procedure to be followed by the Spanish tax authorities.

The Decisions

The judicial court decisions overturn the position held by the Spanish tax authorities and tax courts, as follows:

- In the first of these decisions, the Spanish National High Court3 upheld the DWHT exemption applied by a Spanish company on a payment to a Luxembourg company. Following the European Court of Justice (ECJ) case law (Eqiom,4 Deister Holding & Juhler Holding5 and T-Danmark6) on the burden of proof, the Spanish National High Court overturned the decisions of the Spanish tax authorities and lower tax court stating that the Spanish tax authorities may not set a general presumption of abuse but rather they must establish the existence of elements constituting such an abusive practice in the case under analysis.

See EY Global Tax Alert, Spanish National High Court overturns denial of withholding tax exemption on dividend payments to EU shareholder, dated 2 July 2021 for further comments.

- The second of these decisions is more illustrative since the Spanish National High Court7 validated a bona fide structure. In other words, the Court held that, considering the facts and circumstances of the case, there were valid business reasons for the incorporation of the EU holding company. 

The Spanish National High Court overturned a decision where the tax court had selected different assertions in the Danish case decisions to deny the WHT exemption. See EY Global Tax Alert, Spanish Central Tax Court applies doctrine of ECJ Danish cases to deny withholding tax exemption on dividend payments to EU shareholders, dated 26 June 2020.

By contrast, the Spanish National High Court determined that for the Spanish tax authorities to treat a fact pattern as an abusive practice, it is necessary that they prove: (i) an objective factor – consisting of the fact that, despite the compliance with the formal requirements to apply the EU exemption, the aim of this EU rule - to facilitate intra-EU trade - is not achieved; and (ii) a subjective factor, consisting of the intention to obtain a tax advantage by means of the artificial creation of a structure fulfilling the formal requirements (and this exercise requires an examination of all facts and circumstances) to obtain an undue tax benefit. In this regard, any indicia need to be objective and concurrent.

- In the third decision, the Spanish National High Court8 confirms that the beneficial ownership clause is not “embedded” in the tax treaty if not expressly foreseen and therefore may not be claimed by the Spanish tax authorities to reject a reduced DWHT rate under an applicable tax treaty.

This criterion is aligned with the Spanish Supreme Court interpretation (see EY Global Tax Alert, Spanish Supreme Court confirms case law on limits to dynamic interpretation of tax treaties, dated 21 October 2020).


The Spanish National High Court followed the principles set forth in the ECJ cases on this topic and in particular on the burden of proof and the objective and subjective factors to be considered to evidence the existence of abuse or lack thereof, amending the latest tax authorities’ doctrine.9

This approach by the Spanish judicial courts is more aligned with the rule of law and EU principles. While these decisions may be appealed before the Spanish Supreme Court, the latter has already issued decisions that are aligned with the National High Court in terms of rule of law and application of EU principles.

Notwithstanding the above, the use of EU holding companies remains a priority issue in the context of tax audits and it is essential that investments in Spain be reviewed to ensure that they can adequately evidence all business and commercial objectives of their structures.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Abogados, Madrid

Ernst & Young LLP (United States), Spanish Tax Desk, New York



1. ECJ decision dated 26 February 2019, C-116/16 and C-117/16.

2. Spanish Central Administrative Court Decision 00/02188/2017/00/00 dated 8 October 2019.

3. Spanish National High Court decision dated 21 May 2021, SAN 2467/2021.

4. ECJ decision dated 7 September 2017, C-6/16.

5. ECJ decision dated 20 December 2017, C-504/16 y C-613/16.

6. ECJ decision dated 26 February 2019, C-116/16 and C-117/16.

7. Spanish National High Court decision dated 31 May 2021, SAN 3097/2021.

8. Spanish National High Court decision dated 18 June 2021, SAN 2804/2021.

9. Spanish Economic Administrative-Court decisions dated 8 October 2019.


The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


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